Q&A follow-up to "The Private Equity Survival Guide" in which Paul Giannamore answers business owners' questions about selling to private equity. Topics include how PE firms use debt differently than owners, handling re-trading tactics late in negotiations, psychological and persuasion tactics, transaction timelines, valuation factors, due diligence, post-deal control, whether PE can accelerate growth, rights demanded in deals, backing out after signing an LOI, PE exit mechanics and second payments, and how to create urgency without appearing desperate. Aimed at business owners planning an exit and their advisors. # Channel Presentation Observations: Private Equity Q&A Masterclass ## Explicit Self-Description Evidence - **Creator identity and profession**: The host states, *"I'm Paul Janomore [Gianomore]. I'm an investment banker and I negotiate for a living."* - **Claimed client focus**: *"In any given year, more than half the transactions we advise on tend to be with private equity firms"* — positioning him as deeply experienced in PE deals. - **Reference to an advisory firm**: Multiple references to "we" and "our clients" (e.g., *"We over here have our own blacklist of firms"*), indicating an established advisory practice. - **Cross-promotion of other channel content**: *"I go into far more detail on our sellside master classes. We've done two of them thus far and in the description below, we'll put a link to that playlist"* — evidence the channel has a series of educational M&A content. - **Reference to a named program**: *"When I talk about this in the private equity master class"* — suggesting recurring course-style content. ## Observable Presentation - **Format**: A solo Q&A lecture format; the speaker reads and answers a curated list of *"the most common questions I get from my clients with regard to private equity."* - **Tone**: Direct, advisory, occasionally blunt (e.g., *"Don't be the bone head that answers the one email"*; *"you don't often answer the call from telemarketers"*). - **Call to action**: Direct solicitation at the close — *"If you've got any questions, feel free to reach out to me directly on the contact form in the description below or join me on LinkedIn."* - **Case-study anecdotes used as teaching material**: A story about a seller strung along by a PE firm who then engaged the speaker's firm, ending with the seller entering a formal process. ## Intended Audience - **Middle-market business owners contemplating a sale to private equity**: Addressed directly as *"a lot of you guys out there own businesses"* and *"you own a middle market business."* - **Sellers without representation**: A specific aside — *"for those of you out there who are not a client and don't have an adviser"* — addressing unrepresented owners. - **Owners remaining post-sale**: Discussion framed around sellers who *"sell the majority of their business… Remain on as CEOs."* ## Claimed Scope of Content - **Full PE transaction lifecycle covered**: debt structures, retrading, buyer tactics, timelines, valuation drivers, diligence, control rights, rollover equity, exits, and second bites of the apple. - **Middle-market M&A specialization**: Repeated focus on "middle market" companies, EBITDA multiples, and mid-size deal dynamics. - **Advisory positioning**: The speaker repeatedly advocates hiring an investment banker and running a competitive process, consistent with his stated profession. ## Claims vs. Demonstrated Patterns - **Claim**: Deep PE deal experience (over half of deals with PE firms) — not independently verifiable from this material, but **demonstrated** through detailed walkthrough of LOIs, retrading scenarios, rollover equity, and consent rights. - **Demonstrated**: A channel that functions partly as **lead generation** for the speaker's advisory practice (contact form invitation, anecdotes ending in client engagement, promotion of master classes). # Delivery Observation: Private Equity Q&A Masterclass ## Format & Structure - **Q&A format**: The entire video is structured around client questions, explicitly framed at the open: *"I've put together a list of the most common questions I get from my clients with regard to private equity. So, let's go ahead and dive right in."* - **Question repetition before answering**: He frequently restates the viewer's question verbatim before responding, e.g., *"What should I do if a PE firm starts retrading on a deal on deal terms late in the process?"* - **Verbal chaptering**: He signals topic shifts with phrases like *"So the last question here"* and closes with a sign-off formula: *"Thank you for joining me today and I'll see you on the next one."* - **Cross-promotion embedded in answers**: Multiple references to his other content and services — *"I go into far more detail on our sellside master classes"* and *"in the description below, we'll put a link to that playlist."* ## Tone & Register - **Conversational, colloquial register**: Despite technical subject matter, he uses informal language: *"juice returns," "a very long kind of mating dance," "don't be the bone head that answers the one email."* - **Blunt, opinionated assessments**: He makes direct value judgments: *"I find that particularly distasteful,"* *"pennywise, pound foolish,"* and *"Make no mistake."* - **Plain-spoken summaries**: Many answers open with a one-word or short-phrase verdict before elaboration — *"Significant."* (on diligence), *"Typically not."* (on excessive debt), *"It's possible."* ## Teaching Habits - **Concrete numeric examples**: He quantifies abstract points: *"three, four, five, six, seven, eight times EBIT,"* *"anywhere between 3 and 5 months,"* *"hold them for 2, three, four, five, six, seven years."* - **Everyday analogies**: Recurring device for explaining concepts — the telemarketer/vacuum analogy (*"you don't often answer the call from telemarketers selling... a vacuum or a pool cover"*), and naming well-known companies (*"Home Depot or Lowe's... Maybe Apple or Microsoft"*). - **Hypothetical second-person scenarios**: He places the listener inside the situation: *"You or I, if we were buyers, would retrade,"* and the extended scenario about being courted: *"They've taken you to the Knicks game."* - **Anecdote-driven teaching**: Closes with a client story told as reported dialogue: *"I got a a call from a guy about four months ago who said to me, Paul, what's the best way I can create a sense of urgency without looking desperate?"* ## Recurring Phrases & Verbal Tics - **"You know"** — extremely frequent connective throughout, e.g., *"you know every private equity firm is a little bit different."* - **"I mean"** as a sentence-starter — *"I mean debt allows a private equity firm... to juice returns."* - **"Right?"** as a check-in tag — *"the more debt you put on something the more returns you get... right?"* - **"So on and so forth" / "and so forth"** appears multiple times when listing examples. - **"At its core" / "at the end of the day"** for framing core principles: *"at its core, private equity is a cash flow bio [buyer]"* and *"at the end of the day, cash flow always drives value."* ## Communication Patterns - **Credibility framing up front**: He establishes authority in the opening seconds: *"I'm Paul Janomore. I'm an investment banker and I negotiate for a living. In any given year, more than half the transactions we advise on tend to be with private equity firms."* - **Hedged qualifiers before firm opinions**: He frequently softens then commits — *"I don't know that they use psychological tricks and tactics. I just think they use common sense and seduction."* - **Conditional, "it depends" answers**: Several responses pivot on situational factors — *"The answer to that question kind of depends on the why,"* *"there's no one answer to this."* - **Rhetorical questions answered immediately**: *"Why hire a banker and pay a banker? And why talk to other private equity firms? No one can pay more than us."* - **Prescriptive imperatives near answers' ends**: *"You need to be cognizant of that,"* *"you play hard ball,"* *"you take control of the process and run it yourself."* ## Uncertainty Notes - The speaker's name appears inconsistently in the transcript (*"Paul Janomore"* at open, *"Paul Gianomore"* at close) — likely a transcription artifact; the exact spelling cannot be confirmed from the transcript alone. - Frequent fillers (*"um," "uh"*) suggest an unscripted or lightly-scripted delivery, though whether he is reading from notes is not directly observable. - Some transcript garbling (e.g., *"EBIT.com," "cash flow bio," "visor"*) appears to be transcription error rather than speaker error; these quotes are flagged as unreliable rather than treated as delivery evidence. # Position Record: Private Equity Survival Guide Q&A **Speaker:** Paul Janomore (also rendered "Paul Gianomore" in the transcript's closing), self-described investment banker; states that in any given year more than half the transactions he advises on involve private equity firms. --- ## 1. Use of Debt - **Position:** Every PE firm has a different philosophy on debt; debt "juices returns" to invested equity, but excessive debt makes deals risky. - He finds most PE firms **"pretty judicial"** with debt, at least in the middle market. - **Access differential:** A middle-market owner might take on 1–2× EBITDA in debt, while PE firms can get 3–8× EBITDA. - **Conclusion:** PE firms have debt access sellers don't and use it, but "not to such an extent that I think it puts your transaction at risk." ## 2. Retrading Late in a Process - **Qualification emphasized:** The answer "depends on the why." - **Legitimate retrading triggers (per Janomore):** - Seller misrepresented the business - Performance tanks after LOI - Shoddy numbers (e.g., claimed $5M EBITDA proves to be $4M) - He asserts a strategic acquirer — or any buyer — would retrade in those circumstances. - **Distasteful retrading:** Locking up a deal then retrading "for no logical reason" post-LOI when the seller's numbers were forthright. He calls this "lock, drop, and roll." - **Advice:** If the retrading stems from the seller's own error, the seller must decide to reprice or walk. If it's underhanded, "play hard ball" and be prepared to walk away. - **Note:** His firm keeps a **blacklist** of firms that have "played fast and loose" with clients; he believes most retrading stems from ignorance, not intent (often PE firms entering new industries reacting to advisor findings). ## 3. Psychological Tactics - **Position:** He does **not** believe PE firms use psychological tricks; instead they use **"standard seduction."** - **Mechanism he describes:** - PE firms want proprietary (non-competitively-shopped) deal flow because they pay less. - They cultivate relationships obliquely — dinners, Knicks games, "maybe you can advise us someday" — before any formal offer. - Over time the owner becomes emotionally invested and hesitant to run a competitive process. - **Risk:** Owners "slowly slip and slide into a deal" for less than they could have gotten. ## 4. Timeline - If informally courting a PE firm: potentially a very long "mating dance." - In a formal process: typically **3–5 months**. ## 5. When a PE Firm Reaches Out Directly - **For his clients:** forward the email, reply naming the advisor, or ignore it. - **For unrepresented owners:** meeting PE to understand their world is fine; but if seriously considering a transaction, **get an advisor first**. - **Core stance:** Be in the driver's seat; determine your exit plan and value-creation goals, then go hunt for appropriate partners — analogized to researching and choosing a vacuum rather than answering a telemarketer. ## 6. Valuation Drivers - **Core claim:** Private equity is a **cash flow buy**; cash flow drives value, not revenue multiples. - Industries with recurring revenue (software, SaaS) lean on revenue multiples — in his view "a little more than they should." - Valuation is **inversely related to risk**: de-risking the business increases value. - Greater and faster-growing cash flow increases value. ## 7. Due Diligence - **Expectation:** "Significant." - PE firms **entering a new industry** do more diligence than incumbents (they must learn the industry as well as verify the asset). - Focus areas: accounting/finance (verifying revenue and cash flow with outside advisors), legal (lawsuits, title to assets), operational (structure, org chart, comp, incentives). - PE diligence is "a little more difficult" than strategics, but he says intensive diligence should never sway the decision to do a deal — that would be "pennywise, pound foolish." ## 8. Post-Investment Control - **Majority/control deals:** The PE firm has control by definition — can fire you, replace you as CEO, change the board. They may not do so if you're performing, but "make no mistake," they hold control. - **Minority deals:** Owner retains control but grants **contractual consent rights** (e.g., approval over acquisitions, capex thresholds), negotiated based on leverage at the table. - **Spectrum:** Some PE firms let you run the business as before; others demand dramatic change. No single answer — owners should structure their search so congruent firms "self-select." ## 9. Growth - PE **can** accelerate growth if you lack capital or capabilities (data analytics, CFO-level talent). - Rationale: PE makes money buying at X and selling at X times 3–5, so "probably focused on growing your business more than you are today." ## 10. Excessive Debt Concern - **"Typically not."** The concern is "often unwarranted," though not entirely — it should be considered but not, in his view, be a worry. ## 11. Rights Demanded in Deals - For control stakes: broad control rights post-closing (termination, board changes). - Minority stakes: consent rights as described above. ## 12. Changing Mind After an LOI - Simply write a letter withdrawing — LOIs are typically **non-binding**; either party can walk. - Exception: a binding LOI, which he "would be shocked" to see and attributes to poor advice. ## 13. PE Exits - **Typical hold:** 2–7 years depending on market conditions; **rule of thumb ~5 years**. - 2021 example: exits accelerated, hold periods compressed to ~2 years as "asset prices went to the moon." - **Exit paths:** IPO (rare for his audience), sale to another PE firm, or sale to a strategic (examples given: Home Depot/Lowe's in home services; Apple/Microsoft in tech). ## 14. Second Bite of the Apple - A second payment occurs **only if the owner rolled equity**. - He observes many deals involve no equity roll — particularly **add-on acquisitions**, where he "would be willing to bet" the majority do not roll equity and thus have no second bite coming. ## 15. Sale to Another Investor - In a control deal, that's the PE firm's **prerogative**; the owner would likely be paid out per the shareholder or equity participation agreement. - Terms vary — anything "can be contracted to," so the documents matter. ## 16. Early Owner Exit - "More times than not, you're kind of out of luck" — you wait until the PE firm exits. - Exceptions: contractual **put rights** allowing sale-back at a predetermined price, which he has seen. - Reinforces the need for sophisticated banking and legal teams. ## 17. Getting the Best Deal - Selling a **majority stake**: run a **formal sell-side process**, "bar none." - Selling a **minority stake**: a one-on-one negotiated approach may suffice. - "Don't be the bonehead that answers the one email" and does a deal on the buyer's terms. ## 18. Creating Urgency Without Looking Desperate (Case Study) - A prospective client, months into an exclusive relationship with one PE firm (dinners, NDA, numbers exchanged), reported a "forthcoming" offer that never arrived. - **Janomore's read:** he "would never want to be in a position of just dealing with one buyer." - **Outcome:** After engaging Janomore's firm, the PE firm declined a formal process — showing their interest was lower than the seller believed. Janomore suggests the seller may have been "projecting desire," though he also thinks the firm "strung them along." - **Takeaway:** "This is dealmaking. You got to expect this, so you can't take it too seriously." --- ## Recurring Themes and Tensions - **Competition vs. seduction:** The strongest consistent position is that owners who skip competitive processes sell for less. - **Nuance preserved:** His answers repeatedly split on the "why" — retrading, control, and deal terms all depend on context and contract, not blanket rules. - **Unresolved claims:** EBITDA figures (5M vs 4M), the percentage of non-rolling add-ons ("I would be willing to bet"), and the case-study firm's motivations are stated as anecdotal impressions, not verified facts. # Speaker Attribution Record ## Video **Title:** Private Equity Survival Guide Q&A: Critical Insights Before You Sell | An M&A Masterclass **Video ID:** `01a168c8-17e0-70cb-8cae-084ba9546a50` ## Speakers ### Primary (Sole) Speaker - **Paul Janomore / Paul Gianomore** (transcript spells the name both ways) - **Role:** Creator and presenter - **Self-identified credentials:** "I'm an investment banker and I negotiate for a living. In any given year, more than half the transactions we advise on tend to be with private equity firms." - Acts as **narrator** throughout; answers client-submitted questions in a Q&A format. ### Referenced Third Parties (quoted/anecdotal, not present) - An unnamed caller, roughly four months prior, asking about creating deal urgency with a private equity firm. - An unnamed client ("one guy") who asked about "psychological tricks" PE firms use. No guests, co-hosts, or additional speakers appear in the transcript. ## Promotional Segments (Flagged) - **Sell-side master classes:** Speaker promotes prior "sellside master classes" ("We've done two of them thus far") with a link "in the description below." - **Private equity master class:** Referenced: "when I talk about this in the private equity master class." - **Contact solicitation:** Closing call-to-action — "reach out to me directly on the contact form in the description below or join me on LinkedIn." - **Advisory services pitch:** Speaker describes engaging the caller as a client and running a formal process ("he ultimately engaged us"). ## Referenced Sources & Claims - **No external cited sources** (no studies, articles, or data sources named). - All claims are the speaker's professional opinion/experience, including: - PE debt capacity ("three, four, five, six, seven, eight times EBIT") - Typical deal timeline ("3 and 5 months") - Typical PE hold period (~5 years; shortened in 2021) - Unquantified claims: "I don't know what the percentage is" regarding equity rollovers. - Anecdote: the caller's PE firm ultimately declined a formal process, per the speaker's account. ## Comment Availability - **Not stated** in the transcript; no curated metadata supplied. ## Uncertainty Notes - Speaker's surname spelling varies in transcript (**Janomore** vs. **Gianomore**) — unresolved from source. I'm Paul Janomore. I'm an investment banker and I negotiate for a living. In any given year, more than half the transactions we advise on tend to be with private equity firms. So today, I thought I would take the opportunity to have a discussion with you and I've put together a list of the most common questions I get from my clients with regard to private equity. So, let's go ahead and dive right in. How do private equity firms use debt in ways that most business owners don't? So you know every private equity firm is a little bit different with regard to their philosophy on the use of debt. I mean debt allows a private equity firm or allows anyone to juice returns right the more debt you put on something the more returns you get to invested equity. The issue becomes when something is so debt laden it becomes quite risky. I find that most private equity firms are still pretty judicial at least in the middle market with their use of debt. But you know, private equity firms have the ability to take on far more debt than you do. So for example, you own a middle market business, you might be able to take on one or two terms of EBIT debt, whereas private equity firms sometimes can get three, four, five, six, seven, eight times EBIT and debt. So I do think private equity firms have access to debt capital that you don't and are often willing to utilize it. Uh but not to such an extent that I think it puts your transaction at risk. What should I do if a PE firm starts retrading on a deal late in process? Unfortunately, this happens. We over here have our own blacklist of firms. So there are certain private equity firms that we feel have played fast and loose with our clients and we just won't deal with that. Um I don't think a lot of private equity firms do this on purpose. I think it typically happens out of ignorance and one of the ways that I see this happen most often is a private equity firm will enter a new industry. They'll hire outside advisors, industry experts to come in and help them assess a target company and they'll hear things that they don't like and they'll attempt to retrade. Um, I think some retrading, you know, this question I think really needs to be qualified because the question is what should I do if a PE firm starts retrading on a deal on deal terms late in the process? The answer to that question kind of depends on the why. If you've either misrepresented anything about your business, if your performance tanks after you sign an LOI, um if your numbers are shoddy, uh you can expect retrading, right? If you say, "I've got 5 million in EBITDA and they bring in outside advisors and accounting firms to test that and there's really four million in IBIDA, you should definitely expect somebody to retrade." A strategic acquirer would retrade just as a private equity firm would. You or I, if we were buyers, would retrade. we were expecting to get 5 million in cash flow and instead we're getting 4 million. We're going to retrade. Um what I find particularly distasteful though is private equity firms trying to lock up deals and then retrading for no logical reason post or post LOI specifically when it's proved out we've been forthright with our numbers and the the qualifications of the business. So what should you do? Well, I mean I think it's pretty simple for me. If um if they're retrading because you screwed up, that's something you're going to have to face and you'll be able to make the decision whether or not you want to go through with the deal. Right? If your EBIT.com comes in short, you're going to have to make the decision. Do I want to repric or do I want to pull out completely? If their retrading is underhanded and they were trying to lock, drop, and roll, effectively lock up the deal, drop the price, and then otherwise roll out. If you didn't acquies to it, then I think you play hard ball and you might end up walking away yourself. What psychological tactics do PE firms use to get owners to accept lower offers? Now, this was an interesting question that I've gotten more times than I can imagine. I don't really think that private equity firms use psychological trick. You I've had one guy ask me, "Hey, what sort of psychological tricks are they going to use on me?" I don't really believe that they use psychological tricks. I think they use just standard seduction really. I mean, a private equity firm obviously wants as much proprietary deal flow as possible. And what that means is they want to buy businesses that are not competitively shopped. They want to deal with business owners that don't have an investment banker out there running a competitive process because they're going to pay a much lower price. And I think private equity firms are very, very good at kind of just the tip, right? they're able to track you down via phone or email or hey we're just in the neighborhood we know stop by we're interested in your industry let's just we'll take you out to dinner just to talk um a lot of times they'll approach people obliquely like hey not necessarily interested in your business but we're interested in the industry let's have a glass of wine let's have a steak let's talk about this you know maybe we can um use you as an adviser at some point going forward or so on and so forth and you know over time they develop the relationship ship with you and then of course now you've got some investment in the process with them. You've built a relationship. You get to the point where you might have signed an NDA. Now you're sharing information back and forth. You feel comfortable with them. They feel comfortable with you. If you now come to the point where you want to turn around and sell your business. Let's say you know you've spent a couple of months talking to a private equity firm. They spent a lot of money on you. They've taken you to the Knicks game. They've taken you out to dinner. you've shared some numbers with you and they profered an offer that you thought was decent, but that you could do a lot better. You might be very hesitant to go out and run a formal process. You might be very hesitant to start talking to other private equity firms because you're going to feel like, hey, they've invested in me. I've invested in them. I might offend them. And so, I think sometimes people can slowly slip and slide into a deal that they don't want to be in, quite frankly. And I've seen it happen. They get calls from people that find themselves in that position and say, "What should I do?" So, I don't again, I don't know that they use psychological tricks and tactics. I just think they use common sense and seduction to try to get business owners to not deal with any other buyers. And why hire a banker and pay a banker? And why talk to other private equity firms? No one can pay more than us. And you end up signing away your business for probably a lot less than you ultimately could have gotten for it. So, you need to be cognizant of that. What's the timeline for a typical private equity investment? Multiple years to a few months. I mean, if you're tooling around with a private equity firm uh on your own, you might have a very long horizon. You might have a long kind of mating dance with them before you consummate. But typically, you know, when you get serious with a private equity firm, particularly in a formal process, anywhere between 3 and 5 months is pretty much what it takes to get a deal done. What should I do if a private equity firm reaches out to me? Now, this is a question I get every single day because our clients always have private equity firms reaching out to them directly. And of course, I'm going to answer this like I would answer any one of my clients, which is like, hey, just forward the email. You know, you can reply to it. I if you want the private equity firm to know that you've hired an adviser, you can reply to the email and say, "Put's my advisor. Here's your contact information." That's one way to handle it. The other way to handle it is you could ignore it, right? You're not compelled to answer anyone. Um, and number three, you can just forward the email to us and we'll be in contact with them in the appropriate time period. Um, that's how I would deal with clients. Um, for those of you out there who are not a client and don't have an adviser and say, "What should I do if a private equity firm reaches out to me?" Um, yeah, I mean, that's kind of your decision. You know, if you want to meet with private equity and kind of understand their world and how they operate, I don't see a problem in meeting with them. If you're actually considering a transaction, I would probably advise you to get yourself a visor, don't meet with the private equity firms and wait until you get your plan put together. When I talk about this in the private equity master class, which you want to be at the driver's seat, you don't want to take a passive approach to this. So instead of fielding inbounds from private equity firms, you should determine what it is you want to do with your business, when you want to exit, how you're going to create value, what sort of firm you want to partner with, and then go out and hunt for the appropriate parties. And I use the example, it's like you don't often answer the call from telemarketers selling all sorts of nonsense like a vacuum or a pool cover or whatever and say, "Oh yeah, you know, I'm looking for a vacuum. I'll buy it." No, you find out what vacuum you want. You read reviews, you talk to people, and you go out and buy it. Now, I know selling your business isn't the same thing as buying a vacuum, but you get the point. What are some of the key factors in determining the valuation of my company? Now, of course, there's a lot of consistencies in valuation methodology from company to company, but there are some nuances in various different industries. I would say at its core, private equity is a cash flow bio. A lot of you guys out there own businesses and there's a lot of rules of thumb related to revenue multiples irrespective of what industry you're in. But industries that tend to have recurring revenue, right? Software, SAS, past lawn, whatever, tends to focus a little bit more on revenue multiples uh than they should. But at the end of the day, cash flow always drives value, not revenue multiples. And um private equity firms are cash flow buyers. um you know key factors in valuation is really you know valuation isn't inversely related to risk and so if you can think about all the factors that increase risk in your business if you can derisk the business you're making it more valuable. Um obviously cash flow drives valuation. So the greater the cash flow is and the greater or the faster that stream of cash flow is growing the more valuable the business will be. What kind of diligence can I expect from a private equity firm? Significant. You know, private equity firms are, you know, in every industry now. And there's a lot of them that are entering new industries every single day. And when a private equity firm that's entering a new industry tends to do a lot more diligence than private equity firms that are currently operating in an industry because the new entrant not only needs to make sure that the asset it's buying is what the seller said it is but they also have to learn about the industry and how that particular asset fits in the industry and what sort of acquisition opportunities exist and so on and so forth. So but at its core you can expect diligence to be focused on accounting and finance. Let's understand what revenue is. Let's understand what cash flow is. And let's make certain that what the seller is telling us is true. So, we're going to bring in outside advisors to deal with that. There's legal due diligence, right? Making sure there's no lawsuits or understanding the implications of whatever existing lawsuits are, making sure that you actually are entitled to the asset. There's operational due diligence. How is the business organized? How's it structured? How does it operate? What's your work chart look like? How how are team members incentivized? What's comp structures? How is it harmonized? I mean, there there is a ton of different work streams in due diligence for any transaction, private equity or otherwise. Private equity though tends to be a little bit more difficult, I think, for a lot of sellers than strategics. Um, but I never really think about the complications of a intensive due diligence session swaying me from whether or not I would deal do a deal with an acquire, right? I mean, pennywise, pound foolish to think that way. How much control will I have after taking on a private equity investment? Now, this kind of strikes at the heart of what sort of an investment was it? Is it a control investment? Um, just by definition, the private equity firm will have control, right? If they own a majority of the business, they will have control. from a minority perspective. If they're investing in buying a minority stake in the business, now you will have control, but you'll sign a document that has consent rights on it, and you'll hand over or you'll contractually hand over some rights that would otherwise be yours as a majority shareholder to the private equity firm. Like for example, you might see that you can't make an acquisition without the permission of the private equity overlords. you can't uh spend x amount in capital expenditures without permission. There's a variety of different things that you would contract to. And those contracts are largely based upon the leverage you have at the table when you're closing the transaction and how um the rights and responsibilities between private equity and you impact the ultimate goals of both parties going forward. But I would say that that question is largely asked by individuals who intend to sell the majority of their business. So 60 70 80 90%. Remain on as CEOs. Uh and what they're asking is how much control will they have and every private equity firm is different. And there's a spectrum. Some will pretty much allow you to run the business exactly the same way you are today and others will require dramatic change and there's everything in between. And so that's one of the things you need to do. There's no one answer to this. As you start getting out into the market and thinking about what it is that you want, you'll be able to set yourself up so that the private equity firms that are congruent with your line of thinking will self- select. Can private equity help me grow my business faster? It's possible, right? I mean, it depends upon what sort of resources and capabilities you need. I mean, do you lack capital? like do you have all these great ideas and a great business, you just need more money to capitalize on it? Yeah, they can certainly help you with that. Do you not really understand um some of the dynamics of your customers and you need some data analytics and you need some chief financial officer and you need all all sorts of capabil sure they can help you with that too. I mean there's a lot of way I mean look private equity firms are in the business of buying businesses and selling them. That's literally how they make money, right? They buy it for price X and they sell it for price X times 3 or X time 4 or X 5. So they are probably focused on growing your business more than you are today. So yes, they can certainly help with that. Will private equity firms put my business in excessive debt? Typically not. You already talked a little bit about debt, so I won't go back into that, but I think that's often an unwarranted concern. Although it's not entirely unwarranted. It should be considered, but I don't think it should be a concern. What rights do private equity firms typically demand in a deal? Well, again, this goes back to the prior question. Is it minority? Is it uh majority? Again, for the majority of you, it's going to be it's going to be a substantial or a control stake in the business. And they're going to have a lot of control. They're going to be able to fire you. They're going to be able to replace you as a CEO. They're going to be able to change the board around. Um, now they won't necessarily do that if you're performing, but they will have a lot of control over you postclosing. Make no mistake. What happens if I change my mind after signing a letter of intent? I mean, look, um, some of you do. And when you change your mind after signing a letter of intent, you just write a letter that says, "I've changed my mind and I'm not interested in moving forward anymore." Unless your letter of intent was binding. Um, and I would be shocked if it were. Unless you really did not get any good advice and signed a binding letter of intent, for the most part, it will be non-binding and either party can walk away. How do private equity firms exit their investments and how does that impact me? This is a great question. I mean, private equity firms buy businesses, hold them for 2, three, four, five, six, seven years depending upon market conditions and how they're growing the business. Then ultimately, in order to make money, they need to exit their investments. They've got to sell that thing, right? So um some years after the acquisition you know back during the first part of co when the equity markets were on a tear you know in 2021 22 we saw primarily in 21 we saw a tremendous amount of exits and those exits uh took place at an expedited rate. So the hold period for private equity portfolio companies narrowed right. So they would typically hold for 5 years. We saw a lot of holding periods for two years because asset prices went to the moon and people exited. Um, but I would say probably a good rule of thumb is 5 years for you to kind of think about and um, typically what they're doing is they're either taking the business public. Um, and for most of you that won't be the case. Uh, but they're selling it to another private equity firm or they're selling it to a strategic. So depending upon your line of business, if there's a large publicly traded strategic acquirer of your industry, they might help you grow it and then turn around and sell it to that strategic, right? You know, you might have a big in your line of business, Home Depot or Lowe's might be the the big elephant in the industry and they might be the type of company that buys it. Maybe Apple or Microsoft if you're on the tech side. Will I get a second payment after the private equity firm exits? Yeah. I mean, look, your second payment for the so-called second bite of the apple um will be due to you in a successful exit uh provided you rolled equity. Now, I would say there's I don't know what the percentage is, but there are a lot of deals that happen with private equity where owners don't roll equity. I mean, I would say the extreme majority of the portfolio add-on acquisitions. So, let's say that you've got a private equity company that owns a big portfolio company. let's call it, I don't know, um, a big plumbing business, for example, and that plumbing company goes out and makes a bunch of smaller acquisitions. Now, the owner of the portfolio company, the platform, likely rolled equity, right? Just he likely is a partner with the private equity firm in that business. The add-on acquisitions, some may have rolled equity, some may not have. I would be willing to bet that the majority of them do not roll equity. They were just 100% change of control. And if that was you, there's no second bite of the apple coming for you. But if you rolled equity, if you're a partner with a private equity firm, when they exit, you too shall exit. What happens if a PE firm sells my business to another investor? That's certainly their prerogative. If they're majority, again, I'm talking about a controlling mistake, that's a prerogative, they can do that. Um, and if they do that, you would likely just get paid out at that point in time. Depending upon what the agreement says, you'll have likely have a shareholder agreement or an equity participation agreement. You might be agreeing upfront to roll equity should they sell to another investor. Something you got to look at. Your agreement might say you get paid out in full should they turn around and sell all or any portion of the business. So, pretty much anything in life can be contracted to. And that's why it's really important to pay attention to these documents. What if I wanted to exit earlier than expected? Well, again, this is one of those other contract questions. You know, more times than not, you're kind of out of luck. You're waiting until they exit. Now, there are opportunities for you to put equity to them, which effectively means you could sell that back to them at a predetermined price. I've seen that happen. Um, again, it depends upon how you contract for this, which is why it's very important for you to have a sophisticated backing team and a sophisticated legal team to guide you and direct you on this. How can I ensure I get the best possible deal when exiting to private equity? I would tell you that um, if you're contemplating selling a majority stake in your business, you would run a formal sellside process, bar none. That's what you would do. If you were selling a minority stake, right? If you were selling a small portion of your business, you would probably skip that formal process and do it more kind of one-on-one. Um, but yeah, I mean, the best way that you could do it is run a competitive process. Don't be the bone head that answers the one email from the private equity firm that says, "Yeah, I'd like to sell my business. I'd like to partner with private equity." And then do a deal on their terms. No, you take control of the process and run it yourself. And and if you have any questions on that, I go into far more detail on our sellside master classes. We've done two of them thus far and in the description below, we'll put a link to that playlist so you can get to those. I would watch those. That'll tell you exactly how you can sell your business on the absolute best terms. So the last question here, I got a a call from a guy about four months ago who said to me, Paul, what's the best way I can create a sense of urgency without looking desperate? I said, well, so what are you asking me here? He said, "Well, look, I've been dealing with a private equity firm for a few months. Um, I really like these guys, and I think they're willing to put a pretty big offer on the table. They've said as much. Um, we've had some dinners. We've signed an NDA. We traded some numbers back and forth, and they keep telling me that the offer is forthcoming, although it it just doesn't show up." And so, I wanted to give them a call and say, "Hey, should have got off the pot." And you know, you know, me as an adviser, I look at that and say, I I I would never want to be in a position of just dealing with one buyer. It didn't make sense to me. And I explained it as such. And um you know, subsequent to that conversation, he ultimately engaged us and we're going to be taking that business out to a formal process. and he handed off the contact information to me, that private equity firm, and we gave him a call and and the private equity firm wasn't as nearly interested in the business as he had thought they were. And you know, sometimes I think this might be sellers projecting desire. Um, but in this particular case, I do think that they kind of strung them along. I think that they talked some big numbers, talked a big game, um, didn't ultimately produce the offer, which of course happens sometimes. I mean, this is dealm. You got to expect this, so you can't take it too seriously. Um, but when we had the conversation with the private equity firm, they just said they're not interested in moving forward with us in a formal process. So, that shows me their level of interest. Thank you for joining me today as I discuss my clients most common questions regarding private equity. If you've got any questions, feel free to reach out to me directly on the contact form in the description below or join me on LinkedIn. My name is Paul Gianomore. Thank you for joining me today and I'll see you on the next one.